Actually it never left.
Back in 2007 analysts were writing about millions of bad collateralized mortgages that were sitting in bank and brokerage vaults around the world, waiting to collapse the global economy.
When the predictions proved accurate, in late 2008, Treasury Secretary Henry Paulson privatized the problem, forcing mergers on big banks that later got TARP money, and putting government into all the biggest banks. The idea was the TARP money would help the banks work through the toxic mortgages.
The biggest “recipients” were Bank of America BAC and Citicorp C. Citicorp got into this mess all by itself, and needed an enormous bail-out in November 2008. Bank of America had problems thrust upon it – buying Merrill Lynch under duress when they were on the verge of collapse.
Since then both have sat on those assets, trying to recoup losses from customers while slowly allowing the bubble to deflate. Bank of America is now working through total job cuts that may total over 10,000 and may still face billions of dollars in new loss exposure on old mortgages.
TARP didn't solve the problem of bad mortgages. It bought time but didn't solve the foreclosure crisis, which is still preventing these big banks from lending and making money. After a 1-10 reverse stock split Citicorp is now trading at 27, or $2.70 per old share. Bank of America is sitting at about 7.
The question for these companies today is not buy, sell or hold. It is whether they can be safely liquidated, and whether the underlying, unrecognized (still) losses can be worked through.
Until the mortgage mess is no more, U.S. housing and the U.S. economy can't move forward. Putting it in private hands has just shifted the blame for our lack of growth from Washington, which enabled the bubble, to New York and Charlotte, which monetized it.
It is time to finally admit that money is worthless and that no one is too big to fail. Orderly bankruptcies and a process for marking real estate to market is the only way forward.